17 June 2019: Private equity firm AION Capital – a joint venture between Apollo Global Management and ICICI Venture – is poised to become the single largest shareholder in troubled mortgage lender Dewan Housing Finance Corp. Ltd (DHFL) in a transaction that involves a possible rights issue after an initial investment by the firm founded by Leon Black. Lone Star is also said to be in the race.
Negotiators are also debating whether the profitable portion of DHFL’s business could be carved out for better value, said people aware of the development. DHFL may have signed a non-binding agreement, they said. The regulator has also been approached, they said.
“DHFL is in advanced talks to sell a stake to AION Capital, a JV between Apollo Global Management and ICICI Venture,” said one of the persons. “The promoter has approached the regulator seeking a nod for the same.” DHFL is looking to sell a large part of the wholesale loan business to Oaktree Capital while the retail business is likely to be sold to private equity firms.
DHFL has been facing a cash crunch since September, when Infrastructure Leasing & Financial Services (IL&FS) defaulted on payment obligations and triggered a liquidity squeeze on nonbanking finance companies (NBFCs).
The home financier is looking at various options to raise money. Apart from selling stakes to private equity funds, it’s also selling loan portfolios. It has already sold assets through securitisation. It recently raised Rs 900 crore by selling loan portfolios to pay investors in commercial papers and short-term debt instruments.
Over the past few weeks, Crisil, Icra and CARE have downgraded DHFL’s debt securities to ‘D’, or default category, citing the delay in interest payments to bond holders.
“The company has engaged with large potential entities to identify and onboard the right strategic partner and is in advanced stages of discussions to achieve the same over the next 90 days,” DHFL chairman and managing director Kapil Wadhawan had said on May 7.
Other PE funds including Lone Star are reported to be in the race to buy stakes in DHFL, which is also looking to offload equity in DHFL Pramerica Life Insurance Co., of which it owns 51 per cent. The company has sold its affordable housing arm Aadhar Housing Finance to Blackstone for about Rs 2,700 crore. It’s also looking to sell its direct selling agents business to raise capital.
Between September 24 last year and May 10, the company has made over Rs 30,000 crore in principal and interest payments to creditors, including fixed deposit holders.
After allegations of wrongdoing in its loan segment surfaced, DHFL has been looking to rope in a strong strategic investor to ease concerns. Wadhawan has agreed to step down from active management once such an investor enters.
DHFL shares slumped on concerns about solvency on Friday, dropping 4.51 per cent to Rs 80.45 on the Bombay Stock Exchange.